Employer Stock Is 19% of 401(k) Plan Assets

Employer stock in 401(k) plans held steady at 19% of total plan assets, according to a comprehensive new report of the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI). The EBRI/ICI study is the most comprehensive analysis of 401(k) plan investments. It is based on a database of 11.8 million active participants. The findings are in line with the percentage reported in company stock in prior studies.

The study reports that at the end of 2000, there were about 42 million participants in 401(k) plans with assets of $1.8 trillion. Of this, about $340 billion is in company stock. However, not all plans offer company stock either as an employee investment choice or as an employer match. Only .1% of plans with under 100 participants have company stock, .8% of plans with 100-500 participants, and 3.8% of plans with 501-1,000 participants. By contrast, about 22% of plans with over 1,000 participants have company stock in their plans. Because the companies that do offer company stock tend to be the very largest companies, however, the employee investments in these plans amount to a disproportionate share of total plan investments.

Where company stock is offered as a match and an investment alternative, about 33% is invested in these securities. Where employer contributions are not in company stock, but it is offered as an investment alternative, only about 22% of account balances are in company stock. There are not consistent variations in how much is invested in company stock based on age or tenure.

The issue of company stock in 401(k) plans has become a hotly debated one in light of the Enron bankruptcy. Many Enron employees were primarily invested in company stock and have seen their account balances virtually wiped out. The Enron case is unusual, but it highlights the importance of viewing 401(k) plans as retirement plans that should be diversified. Most ESOP consultants, as well as the NCEO, urge ESOP companies to have diversified 401(k) plans as well and, in fact, ESOP companies are more likely than comparable non-ESOP companies to offer other kinds of retirement plans.

Copies of the EBRI/ICI study "401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2000" are available online at http://www.ebri.org/publications.